How should you approach your application for authorisation? The key is to plan to become compliant. The first step is to plan your authorisation project and to determine who in your firm needs to be involved.

In addition to assembling a good deal of factual information (financial and non-financial) required by the FSA, the main elements of the project are:

  • Determine which regulated activities you carry out. Remember authorisation is not enough on its own. You need specific permissions to carry "regulated activities". The definition of these may not precisely fit the way in which you describe them within your firm. Ensuring that you have the correct permissions will be important. Getting this right will require a careful review of everything you do. You may need legal advice.

  • Decide which individuals within the firm will need to be individually approved by the FSA. Remember FSA rules require, as part of the rules on "senior management arrangements, systems and controls", that firms formally allocate responsibilities between board members and senior staff in a way that meets FSA requirements.

    • This process will help you determine who will have to be nominated to the FSA as "approved persons". The FSA's statements of principle and code of practice for approved persons (APER) sets out the standards that your directors and key senior personnel must meet to obtain individual approval by the FSA and by which they must operate thereafter.

  • Decide whether you wish to hold client money and, if so, how you will comply with FSA rules.

  • Determine what capital your firm needs to hold and what PII cover (NB there is some scope for a trade-off between these). You will need to compare this with what you have now, and consider how any gap will be bridged. If you wish to take a high level of excess on your PII cover you may need a specific waiver from the FSA rules to allow this.

  • Ensure that by the time you are authorised you will be able to comply with the FSA's high level principles, together with the more specific training and competence, complaints handling and insurance mediation directive requirements. For firms whose annual turnover is less than £1m, the application process will simply require you to declare that you will comply from the date you are authorised. Firms with turnover above this level will be required to submit a detailed compliance plan and a regulatory business plan.

    • It is evident that the authorisation project should be managed by a team involving staff from throughout the firm. It should be owned and managed "from the top", and have sufficient clout and resource to do the job. The objective must be to ensure that regulatory requirements, and in particular the high level "principles for business" are disseminated and understood throughout the firm.

    Remember that observing these principles is a formal requirement. Firms and individuals may be disciplined by the FSA if it considers that these principles have not been observed - even where no detailed rule has been breached.

    The FSA has been accepting applications since January. It has made clear that applications received later that 13 July may not be processed in time for 15 January 2005.

    It is understood that only about one third of firms expected to seek authorisation have so far registered their interest.

    Submitting the application is only the beginning of the process. By January next year you must be able to run you business safely and without fearing the regulator's knock on the door.

  • Oliver Lodge is managing director of Beachcroft Wansbroughs Consulting

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